## Facts

- TC Pipelines, LP was a publicly traded Delaware master limited partnership managed by its general partner, TC Pipelines GP, Inc., a subsidiary of TransCanada Corporation.
- TransCanada, through an affiliate, sold an interest in a pipeline asset to the partnership in a conflicted “drop-down” transaction.
- A limited unitholder challenged the transaction as economically unfair and alleged the general partner acted in bad faith.
- The limited partnership agreement displaced default fiduciary review and instead provided a contractual conflicts framework.
- The agreement authorized “Special Approval,” under which a conflicts committee of independent directors could approve a conflicted transaction.
- The agreement stated that a transaction receiving Special Approval would be “conclusively deemed fair and reasonable” to the partnership and “conclusively” not a breach of the agreement or any duty stated or implied by law or equity.
- A conflicts committee was formed, evaluated the transaction, and granted Special Approval.

## Issues

1. Whether the partnership agreement’s Special Approval mechanism created a conclusive contractual presumption of fairness that barred judicial review of the transaction’s substantive fairness.
2. Whether allegations of economic unfairness, without particularized facts suggesting improper motive, process misconduct, or other bad-faith conduct, stated a claim under the implied covenant of good faith and fair dealing despite Special Approval.

## Decision

- The Court of Chancery granted defendants’ Rule 12(b)(6) motion to dismiss.
- The court held that, under unambiguous agreement language, Special Approval by a properly constituted conflicts committee triggered a conclusive presumption that the transaction was fair and reasonable, foreclosing substantive fairness review.
- The court held the complaint failed to plead facts supporting a reasonable inference of bad faith or conduct inconsistent with the parties’ contractual expectations, and therefore did not state an implied-covenant claim.
- The Delaware Supreme Court affirmed.

## Legal Principles

- In Delaware alternative entities, clear contractual provisions defining or eliminating fiduciary-style obligations govern judicial review, with only a limited, cautious role for the implied covenant of good faith and fair dealing.
- Where an agreement provides that independent conflicts committee approval “conclusively” deems a conflicted transaction fair and not a breach of contractual or implied duties, courts generally will not reexamine the transaction’s economic fairness.
- The implied covenant cannot be used to reintroduce fairness review or override an express conclusive-presumption clause; a plaintiff must plead specific facts indicating improper motive, process failures, or other bad-faith conduct.

## Conclusion

Because the partnership agreement made conflicts committee Special Approval conclusive as to fairness and compliance with duties, and the complaint alleged only economic unfairness without particularized bad-faith facts, the courts dismissed the challenge to the drop-down transaction and affirmed on appeal.


Emps. Ret. Sys. of City of St. Louis v. TC Pipelines GP, Inc., 2016 WL 2859790 (Del. Ch. May 11, 2016)